Demand from Beijing, one of Tehran’s last crude-oil customers, drops amid chaos of health crisis
Benoit Faucon in London and
Gordon Lubold in Washington
Iran’s crude-oil sales have been battered by a sudden downturn in demand from its last big trading partner, China, following the deadly coronavirus outbreak, U.S. and Iranian officials said, a blow that lands as the Islamic Republic faces the risk of an economic collapse.
In addition to declining oil sales, turmoil in China also is disrupting the supply of spare parts and cheap goods Tehran needs for its factories and bazaars.
“The Iranian economy is already in bad shape,” said Ali Amirliravi, a Tehran-based commodities trader. “Now the coronavirus is hurting trade between Iran and China.”
The outbreak since mid-January has mushroomed into an epidemic, killing more than 1,000 people and halting businesses such as refineries and manufacturing plants across the country.
The slowdown at an industrial powerhouse once known for its insatiable appetite for raw materials has rippled far and wide, from Vietnamese coffee growers to Midwest hog farmers. It has even forced Saudi Arabia, the world’s top oil exporter, to lobby Russia to join collective crude-production cuts.
Iran says it hasn’t recorded any cases, but the nation is among the most vulnerable economies world-wide to the crisis faced by China, its most important economic ally.
In 2018, Beijing defied the Trump administration’s decision to quit an international nuclear pact and reinstate sanctions against Iran. China is now the last major buyer of Iranian oil, the Islamic Republic’s most lucrative commodity.
China bought 300,000 barrels a day of Iranian oil in 2019, according to the International Energy Agency, an oil-consumers’ body, although that is half the level it has purchased in the past. A spokeswoman for Iran’s oil ministry said she had no information on Iran’s oil exports as the data isn’t public.
Current and former Iranian oil officials say Chinese purchases of Iranian oil have declined further since the outbreak, with refineries in China reducing their operations as workforces stayed at home and the government restricted transit and travel in the country. U.S. officials said they couldn’t specify the decline.
No Iranian crude cargoes have been discharged in China since Jan 24, contrasting with average weekly arrivals previously, according to data from international commodities-data provider Kpler.
The setback comes as Iran, which just commemorated 41 years of existence as an Islamic republic, is the most economically vulnerable it has been in decades.
The United Nations estimates the country’s gross domestic product is set to contract 2.7% this year, the third year of recession, as it faces triple-digit inflation rates.
Until now, China has provided a rare buffer against further turmoil. Last year, Beijing traded $23 billion of goods with Tehran, almost two-thirds of which were commodities sold to the Asian powerhouse, according to its General Administration of Customs.
Beyond crude oil, the lockdowns in China are jeopardizing some of Tehran’s other business opportunities, including a giant oil-field investment in Western Iran and spare parts sold by Beijing for Iran’s car factories, Iranian businessmen said.
Tehran has been forced to interrupt flights to and from China. The chairman of the Iran-China Chamber of Commerce, Majidreza Hariri, warned on Jan. 25 against travel to the Asian nation.
Mr. Hariri said at the time there was no impact on bilateral trade. Foreign Minister Javad Zarif has expressed solidarity with China in Mandarin-language tweets. But on the ground, Iranian businessmen say the coronavirus outbreak is hurting business.
A distributor of electric consumer goods said production at refrigerator factory in southeastern Iran had been impeded by the shutdown of a fan maker in Wuhan—the epicenter of the epidemic in China. Iran started to produce its own refrigerators after sanctions stopped Asian brands from selling there, but it is now struggling to find replacement fans in Turkey, the distributor said.
Mohammad Parsa, a former director at the Tehran chamber of commerce, said the outbreak had also disrupted arrivals of cheap household goods and automotive spare parts.
The economic paralysis in China also is hurting prospects of Chinese investments in Iran. Until mid-January, China’s state-run energy giant China Petroleum and Chemical Corp., or Sinopec, had continued talks to invest $3 billion for more development of an Iranian oil field, an adviser to the project said. But these conversations have been halted as Chinese executives are banned from traveling from China and into Iran and activity more broadly comes to a standstill, the adviser said. Sinopec didn’t return a request for comment.
U.S. officials said any purchases of Iranian oil fund the regime’s foreign interference activities and its missile-development programs. “Any Chinese company importing Iranian oil at any time is engaging in sanctionable conduct and risks being sanctioned directly as a result,” a senior administration official said on Thursday.
Some Iranian businessmen see rare silver linings amid the turmoil.
Mr. Amirliravi said he has received orders from China for the delivery of one million face masks a day. The businessman said he can’t deliver them because Iran has banned such exports in case of an outbreak there. But for others, “There is the black market.”